My First Tender

As a powerhouse investor on the Israeli financial scene, I am often asked to opine about big ticket acquisitions of publically traded companies on the TASE.

Of course, by “powerhouse investor,” I may be somewhat overstating my personal impact on the market. Technically speaking, “statically insignificant,” may be more accurate. But why mince words?

Also, I may not be “asked to opine” all that frequently. It may be more accurate to say that I opine by accident.

In this case, I happened to have received this actual email last week from my Israeli brokerage account provider:

נושא:  יביאי- הצעת רכש- וילי פוד

מצ"ב ההצעה

בברכה,

אי.בי.אי. - שירותי בורסה

Attached to the email was a personal letter written to look like a form letter from Emblaze Ltd., which is an investment holding company owned by Alexander Granovsky. If you don’t know who that is, you are obviously much like myself and do not keep up with the news about IDB Holdings.

In any case, Emblaze has entered into a deal to buy out the majority shareholders (and founders) of Willi Food. By Israeli securities law, Emblaze is required to offer a “tender” to buy a 4% stake in the company from ordinary shareholders like myself at the same price.

In the personal letter, Emblaze has offered to buy out my stake in Willi Food for 34.710353 shekel per share. (The people at Emblaze are nothing if not exacting in their arithmetic!) This would be an almost 35% premium on the current trading price of Willi Food at around NIS 25.45.

What does the internet’s foremost non-expert think of this deal?

Willi Food by Accident

Will Food comprises 3% of the I-PRAY index, which makes it one of the 30 most important companies in the Investing by Accident portfolio. To understand why it is there in the first place, I returned to the copious notes that I took when I researched Willi Food. Here is what I found:

וילי פוד. Despite what I originally thought, this company is called, “Willi Food,” and not “Villy Pood.” However, I still sometimes call them that way in my head. This small company produces/imports/exports all sorts of kosher foods. They are especially fond of canned foods, including sardines. I assume that people (especially Jewish people) will want to eat, so how could we lose on this one (except for the part about sardines)? Also, all of our American friends can get in on this company, as they are traded on the NASDAQ as WILC.

This still seems to me like a very reasonable case for investing in this company. Fortunately, because Willi Food is traded in the U.S., I can turn to the U.S. financial sites to find information in English about this sale.

I assume that anyone in the U.S. who is interested in an Israeli company worth around $100 million must have happened upon it by accident. If you don’t believe me, just check out this article analyzing the transaction. 

This is non-expert level writing, including analysis on market valuation, balance sheets and cash flows... using spreadsheets. Spreadsheets! In my home, our cash flow analysis is never done with spreadsheets. Mostly, it goes something like this:

Wife: Do you have a 20?

Me: No.

Wife: Ugh! Do you at least have two 10's?

Me: No.

Wife: Ugh, ugh!

The 10's and 20's are the most valued kind of money in our household. We will pay almost anything to get them.

To Sell or Not to Sell

I was very touched by the personal offer letter, and have therefore decided to respond with my own personalized letter:

Thank you for your kind offer to buy my ____ number of shares of Willi Food. Unfortunately, I have decided not to sell these shares at this time.

I am not an expert, but it seems to me that the offer is still well below the fair value of the company. Willi Food is currently trading at just 8x revenue from 2013. This is extremely low as compared to other Israeli food manufactures such as Maaborot and Osem which are trading at 23x and 24x.

With your offer, Willi Food would trading at around 11x, which still seems below value. Well, I guess that is why it makes sense to you to buy a controlling interest in the company at this price.

In any case, I do hope that you will be able to close the deal and help bring the value of the company more in line with where it should be.

I thought about selling and then buying the shares right back. That sounds like a pro move to me, but it’s a bit of a hassle. The money from the sale would be wired to my bank account, which would mean that I would need to wire it back to my brokerage account.

Maybe if they paid me in 20's I would be willing to do it.